Past Articles for July, 2006

Credit cards, mortgages, loans and other forms of credit mean that Britons are more in debt than ever before, with most of this down to home ownership.

“Our findings are still very alarming in that they show that a significant number of people are taking on a lot more debt,” said Chris Holmes, chief executive of One Advice which carried out the research, according to Sky News.

He said that the findings came as total personal debt levels passed £1.2 trillion and despite many people cutting their debt.

However, mortgages account for an average debt of £39,129, while credit cards also make up a significant amount as do personal loans and overdrafts.

Many people even owe money to family and friends yet only a fifth of respondents to the survey said they were concerned about their debt despite its large level.

This means that they may fail to act to halt debt levels growing, affecting their future prospects for financial contentment.

Debt resolution company ClearDebt said that the 17,000 people who had left information on its website had average credit card and unsecured loan debts of nearly £27,700, roughly £10,000 more than their annual take-home pay.

Andrew Smith, ClearDebt marketing director, said: “Whilst the figures for the population as a whole look daunting these figures mask the real problem, which is that there are probably more and more individuals whose debt has become unmanageable but who either do not yet realise this or who are making the tragic error of waiting to see if things get better: they usually don’t.”

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In its report, the authority accused financial firms of failing to always give correct advice, which could lead to people getting into debt.

Welcoming the report, the chairman of the Financial Services Consumer Panel, John Howard, said: “For consumers to have confidence in the financial services industry, they need to be able to trust that the adverts that they see, the documents they read, and the advice they are given are all clear, fair and not misleading.

“That is what ‘treating customers fairly’ should be about.”

Mr Howard added that it was not just good enough for head offices to say that they were treating customers fairly, but high street branches must do so too.

The FSA report follows one published in June which said that in many cases mortgage documents were not up to scratch.

Now it says that other information given should improve, meaning that many customers could be piling up debt because they were ill-advised about the products they took out.

ClearDebt chief executive, David Mond, said: “It probably should be a case of ‘buyer beware’ but we have many clients as likely to have been over-sold to as they are over-borrowed.

“Increasingly consumers are finding they cannot repay their debts – and whilst it is hardest for them, shareholders in loan companies may also begin to find the value of their investment affected by over-selling.”

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Although there is to be a public consultation committee before the adverts are allowed, fears remain that children and people with gambling problems will be at risk of being encouraged to gamble.

“The Salvation Army is concerned about the introduction of new gambling advertising and the potential impact that this may have on society,” said Salvation Army spokesman Captain Matt Spencer.

“We fear this could lead to an increase in problem gambling and this needs to be closely monitored.”

Under current proposals, betting organisations will be allowed to advertise on television from next September.

While those on the committee are saying that they will exercise caution on the adverts, others are concerned that any advertising will encourage gambling and the debt risk this brings.

With internet gambling already being criticised for encouraging more credit card debt, the Evangelical Alliance said it would have liked the committee to have “exercised greater moral and social responsibility”.

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Rather than planning for the future by repaying any loans or debt that they have, IFA Promotions found that a quarter of Britons would rather spend any increase in income on luxuries.

“Despite well-documented and countless warnings that as a nation, we are not saving enough, it seems that people are yet to adopt a sensible savings mantra,” said David Elms, chief executive of IFA Promotions.

“People need to place clearing debt and saving much closer to the top of their list of financial priorities.”

His comments come as a More magazine survey found that 80 per cent of young women spend more than they earn and turn to parents for help.

However, Mr Elms said that even without a pay rise, people could still take the opportunity to clear debt, but poor budgeting is preventing them from doing so.

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Maria Eagle, the enterprise minister, announced the funding of £800,000 over two years to place advisers across the province to support advice in towns and cities.

“Debt in Northern Ireland is having an adverse economic, social and personal impact on the lives of many people here,” said Ms Eagle.

“This new debt advice contract will help clients to regain control of their financial affairs.”

The new debt advice service has been established following a successful pilot scheme last year in which 160 more people were helped.

Ms Eagle said that Citizens Advice is a “very important and welcome” service and provides a “necessary service” to those in debt, which the new funding will help support.

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Not only can bad debt add to a bad credit rating, but so can being rejected for a loan. Neil Munroe of Equifax is urging people to check their record first.

“Every time you apply for any kind of credit the lender will search your records. You’ll also be marked down for a large number of searches,” said Mr Munroe to This is Money.

‘It used to be only large loans that were recorded. Now all kinds of credit, including your mobile phone payments, count too.”

The warning comes as Moneyfacts recently published a report highlighting the number of people who are rejected for loans or offered higher rates than advertised as “typical”, usually because of their credit rating.

Through obtaining a report for as little as £2 from agencies such as Equifax, Experian and CallCredit, consumers can increase their chances of getting a loan that suits them.

If you want to find out more about maintaining your credit rating, click here for ClearDebt’s useful credit rating guide.

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Secretary of state for work and pensions, John Hutton, said that this will be the best way to stop people from under-saving, particularly the low earners.

“We need to tackle the culture of under-saving, particularly among lower earners,” said the minister. “We believe the best way to get more people saving is to automatically enrol them into personal accounts.”

His announcement comes ahead of a radical shake up of the pensions system which should help more people be properly supplied for their pension.

Mr Hutton believes that through the automatic enrolment and getting lower charges, people should be able to keep a fifth more of their private savings.

Through these reforms, another £5 billion of savings are expected to be generated, which should hopefully help more people stay out of debt when they retire.

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While this may suit the England football team’s wives and girlfriends (Wags) who have rich partners to support them, a survey found that 80 per cent of women were spending more than they brought in.

According to the More magazine survey, women are spending rather than saving for things such as mortgages and top of the poll of women other women admired was the “Queen Wag” Victoria Beckham.

She was the “most admired woman of the 21st century” largely to do with her attitude towards shopping.

While Mrs Beckham has the finances to support the purchase of £8,000 of skiing gear without even going skiing, other women without the funds are trying to emulate her.

Half of the 2,000 women polled owe an average of £3,830 on credit cards and 40 per cent have been bailed out by parents.

Such warnings of poor economics coincide with recent government warnings that more young people are risking large debt later in life through poor finances now.

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The Association of British Credit Unions Ltd (ABCUL) research says that it was helping low-income families save, with nearly half saying that credit unions were their only method of saving.

“This report shows how credit unions are reaching a wide range of people in their communities and provides an invaluable baseline from which credit unions can measure their current and future work,” said ABCUL chief executive Mark Lyonette.

A credit union is a non-profit cooperative financial institution owned and controlled by its members and only they may deposit money with the union, or borrow money from it.

According to the report’s findings, 41 per cent of members had stopped using home credit thanks to the unions, which are geared towards helping the least well off members of society.

Mr Lyonette said that with the success he hopes the scheme will expand and help more people facing debt and other financial difficulties.

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New figures show that only a quarter of potential borrowers were approved straight away, with a further 17 per cent being offered a higher rate than they hoped for.

Stuart Glendinning, managing director of moneysupermarket.com which carried out the research, said: “Most customers will be shocked to discover how high the immediate decline rate is.

“As if this isn’t bad enough consumers then face a lottery of whether or not they will be offered the headline APR.”

Although APR “typical loan rates” must be offered to two thirds of borrowers under current rules, many firms, particularly big banks, are avoiding putting rates in adverts.

This means that people will have to apply to find out what rate they could be offered, incurring the risk of rejection and, as Mr Glendinning said, wasting their time.

He recommended that people exercise caution when applying or look at loan comparison websites, as being rejected for a loan can affect a credit rating.

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